Malaysian Government Securities (MGS) and Government Investment Issues (GII) yields mostly softened across the curve this week, driven by solid demand for long-duration assets and positive trade developments, according to Kenanga Research.
Yields shifted between −4.2-4.2−4.2 and 0.90.90.9 basis points (bps) during the week. The benchmark 10-year MGS declined 1.5 bps to close at 3.498%3.498\%3.498%, while the 10-year GII fell 3.4 bps to 3.529%3.529\%3.529%.
Solid Demand Meets Global Risks
Kenanga attributed the downward pressure on yields to steady domestic demand amidst a landscape of persistent global risks.
A key highlight was the recent 30-year MGII auction, which attracted robust participation. The auction achieved a solid 2.07x bid-to-cover (BTC) ratio, signaling strong investor appetite for long-duration risk.
Sentiment was further bolstered by:
- Domestic Resilience: Continued confidence in the local tourism sector.
- Trade Developments: Improved external sentiment stemming from progress in the EFTA-Malaysia Free Trade Agreement negotiations.
- Strategic Partnerships: France’s push for deeper collaboration with Malaysia in the rare-earth value chain.
However, the decline in yields was kept in check by external headwinds. A slightly hawkish tone from the US Federal Reserve and heightened geopolitical tensions between the US and Iran served to cap overall risk appetite.
Foreign Outflows Persist
Despite the easing yields, foreign fund flows painted a contrasting picture. Kenanga noted that foreign investors trimmed their holdings of Malaysian government bonds by approximately RM1.5 billion last week.
This brings year-to-date outflows to roughly RM5.1 billion,” the research house noted.
Interestingly, a divergence in sentiment remains visible, as foreign investors remained net buyers in the domestic equity market even as they reduced bond exposure.
Outlook: Rangebound Trading Ahead
Looking ahead, Kenanga expects domestic yields to remain largely rangebound in the near term.
Underlying domestic strength, supported by upcoming Purchasing Managers’ Index (PMI) readings and a stable Ringgit, is expected to help anchor yields. However, global macro factors will likely dictate volatility.
Investors are now turning their focus to crucial US labor data and President-elect Trump’s imminent announcement of the next Fed Chair nominee, both of which have the potential to inject fresh volatility into interest rate markets.
